I'm a Fellow at the Adam Smith Institute in London, a writer here and there on this and that and strangely, one of the global experts on the metal scandium, one of the rare earths. An odd thing to be but someone does have to be such and in this flavour of our universe I am. I have written for The Times, Daily Telegraph, Express, Independent, City AM, Wall Street Journal, Philadelphia Inquirer and online for the ASI, IEA, Social Affairs Unit, Spectator, The Guardian, The Register and Techcentralstation. I've also ghosted pieces for several UK politicians in many of the UK papers, including the Daily Sport.

Apple Falls To Sixth In China: So, What Should It Be Doing?

Two little pieces of information out today about Apple before they declare their results at 5 pm EST. Their market share in China has fallen so that they are now sixth in that market. And they seem to be having great problems in the other emerging markets as well.

Bloomberg gives us this wonderful example of the sort of problems that Apple is having in China:

Apple Inc. (AAPL) is being outsold in China, the world’s largest handset market, by a company less than 1 percent its size, highlighting how the lack of low-cost products limits the iPhone-maker in emerging nations.

China Wireless Technologies Ltd. (2369) is one of four domestic suppliers outselling Apple in China with smartphones tailored to the budget of the nation’s budding middle class. Its Coolpad 8060 retails for 619 yuan — or just under $100 — less than 20 percent the price of the cheapest iPhone.

That puts Apple at only sixth in that market. The problem is quite simply that the average income in the country is now $577 a month. That’s a startling rise on what it was only ten years ago but it’s still too low to make a $600 or $700 phone a likely purchase for the mass of the population.

The US remains Apple’s global heartland, and Christmas sales stats from consumer group Kantar World Panel saw iPhone retain its smartphone crown in the US – but this year it edged up a healthy 6 per cent to take 51.2 per cent of the market. Android mobes lingered at 44.2 per cent of the market share, down a sliver of a percentage point from 44.8 last year.

But Android sales were up everywhere else, and the Google operating system holds 72.5 per cent market share in China, the world’s second biggest smartphone market after the States. Android was also top in Britain, Spain, Australia and Germany in sales for those three months.

All of which leads to the same question that some of us have been asking for some time now. There are two basic strategies available to the company.

The first is to continue to do what it currently does so well. Make the majority of the profits in the market by providing top end handsets and software at premium prices. None of us are predicting the imminent failure of that policy. As those developing countries become richer more people will be able to afford Apple. We might call this the “BMW” strategy as a commenter here put it a few days ago. Just forget the bottom end, the $100 Android handsets, and carry on as currently.

The other strategy would be to continue to make the high end sets but also enter the market in that low end. It’s possible that this would lead to an entirely new market. It’s also possible that low end Apple handsets would cannibalise sales of the high end ones. Which happens in what proportion would determine whether low end additional models increased or reduced total profits: which is the point of the whole effort, to make the maximal profits possible. Bloomberg seems to think that they’ll enter the low end:

The company is also planning a smaller, cheaper version of the iPhone aimed at developing markets. The handset, costing somewhere between $99 and $149, would be introduced late this year at the earliest, a person familiar with the matter told Bloomberg News this month.

I have to admit that I’m really not sure about that. I don’t know which way Apple will go. I’m not in fact certain that Apple knows as yet which way it is going to go. I’ve no doubt at all that they’ve experimented with building a cheap phone. Worked out what they could offer at what price. But my suspicion is that they haven’t as yet, actually decided one way or the other one actual production.

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So? China is selling large amounts of a cheap phone that they mass produce. I guarantee you Apple is still making a much larger profit from what they sell because that’s what Apple does. Apple is about quality not about some cheap piece of crap phone you can get out of a cereal box.

Apple has peaked, and is in decline. They’ve lost smartphones to Android for the same reason they lost the desktop to Microsoft–their business model only works for so long.

Apple should do what Dell’s doing, and go private. Then they won’t have to worry about pleasing bloggers and bankers, and can instead focus on taking risks and innovating and producing high-quality products.

“The other strategy would be to continue to make the high end sets but also enter the market in that low end. It’s possible that this would lead to an entirely new market. It’s also possible that low end Apple handsets would cannibalise sales of the high end ones.” - That works somewhat in cars, but it has never worked particularly well in tech unless the OEM in question limits availability of the low end product to low end markets only. See HP’s acquisition of high end PC OEM Voodoo for an example.

In addition, the leading luxury car brands – BMW and Mercedes – continue to be luxury only.